No Inclusion of Independent Royalty Payments in Value, Madras HC Goes against CESTAT in Xiaomi Qualcomm Transaction

· Case Background:

o Rising Star Mobile India Pvt. Ltd, contract manufacturer for Xiaomi, faced penalties under Sections 112(a)(i) & 114AA of the Customs Act, 1962.

o Issue centered on whether royalties/licence fees paid by Xiaomi India to Qualcomm and Xiaomi China should be included in assessable import value.

· Court Decision:

o Madras High Court granted stay on CESTAT order remanding matter for re-determination of penalties.

· Manufacturer’s Argument:

o Royalties/licence fees are independent transactions between Xiaomi India and Qualcomm/Xiaomi China.

o Rising Star, as a non-exclusive contract manufacturer, has no contractual obligation or knowledge of such payments.

o No evidence of abetment or intentional falsification in the SCN to justify penalties.

· Relief Granted:

o Stay order provides significant relief to Rising Star, shielding it from immediate liability while the matter undergoes further judicial scrutiny.

[ABS News Service/14.04.2025]

In a significant relief to contract manufacturer Rising Star Mobile India Pvt. Ltd, the Madras High Court has granted a stay on the CESTAT order remanding the matter for re-determination of penalties under Sections 112(a)(i) and 114AA of the Customs Act, 1962.

Rising Star, which imports components and assembles Xiaomi-branded mobile phones, strongly argued that royalty/licence fees paid by Xiaomi India to Qualcomm and Xiaomi China entities are independent transactions, outside its knowledge and contractual obligations.

It contended that as a pure non-exclusive contract manufacturer, it has no liability to include such royalties in the assessable value of imports, and the SCN lacks any evidence of abetment or intentional falsification required for penalties.